Bean Musing

Why Is Malaysia's Salary So Low and What You Can Do About It

2020-07-05personal-finance

Why is Malaysia’s average salary so low?

I saw this question recently on Twitter, and I was asked this by my friend. I gave a few potential reasons but I was not satisfied by the answer. As a result, I decided to investigate further.

Is Malaysia’s salary really that low?

This is a question worth being brought up upfront, as we all know people who always complain about “money not enough la” regardless of wealth level.

In terms of Gross National Income per Capita…

Based on World Bank’s definition of High Income Nations, you need a gross national income (GNI) per capita of USD 12,535 or more in 2019.

Malaysia’s GNI per capita in 2019 was USD 11,200. Eh we are almost there!

In terms of GDP per Capita…

Next, I look at GDP per capita, a metric used to measure economic wealth attributed to individual citizens. Malaysia’s GDP per capita in 2018 was USD 11,373. For illustration purpose, I also included other countries’ data. You can see how Korea has overtaken us, and how China is rapidly bridging the GDP per capita gap with us.

In terms of Average Wages…

Okay, I found Bank Negara’s report on this, it seems like it is indeed true that we are paid less for the output we produce.

Read more here: Are Malaysian Workers Paid Fairly?: An Assessment of Productivity and Equity

Bank Negara’s report suggests that we are not being paid fairly for our output and productivity, but at the same time, our “productivity” (value-add) is not at the same level as advanced economies.

The second point makes sense, but WHO is not paying us fairly?

Are employers the one paying the workers unfairly?

It does seem like that could be the case. However, there are more beyond what meets the eye.

For business owners, they have to pay for labor, raw materials, capital (machinery), rent, etc. If prices of goods are becoming cheaper but the cost stays the same, it makes sense that the wages remain stagnant.

Many are going to argue, how could price become cheaper when cost of living is rising? I think it is plausible for certain industries where prices are going down due to competition in the global supply chain. I am sure y’all have heard of Taobao?

Of course, nasty bosses exist. Maybe you can purchase the SSM report of your company to find out how much of a profit your boss is taking each year. Only for a price of RM15.90. You are welcome.

Nasty bosses aren’t the only factor. As I briefly mentioned above, in the age of globalization (dalam era globalisasi… anyone else used the same phrase in their BM essays last time?!), the global supply chain is becoming more integrated. We buy stuff from other countries, and boy do we. International trade is what is keeping us alive.

Case in point: Do you know how much food Malaysia imports per year?

In terms of food, we have mostly palm oil… cannot feed us weih.

If we have to import something, we become price takers, i.e., we are paying global prices for stuff. While we rave about how cheap and good Malaysian food is, our groceries are the same price as the UK!? iPhones are the same price, whether in Malaysia or USA (well, there are some differences because of taxes). Considering that, it seems that weak Ringgit is another issue eating at us.

Before you curse behind your bosses, there are some points I would also like to highlight:

In Malaysia, low and mid-skilled workers make up majority of the workforce.

Low to mid-skilled workers make up 75.9% of Malaysia’s workforce in 2017.

Share of income of this group of workers has increased too due to the expansion in wholesale and retail trade, F&B, accommodation and construction. Due to the availability of supply from both local and foreign workers, this segment is plagued with low salary. While the minimum wage policy in place has improved the situation somewhat, the issue won’t go away anytime soon.

Perhaps your bosses are only looking to hire low-skilled workers. Maybe they can’t justify paying you more because you’re… over-qualified?

Over-qualified graduates are among those who took up the low to mid-skilled jobs.

Khazanah Research Institute reported that out of the 95% of young workers in unskilled jobs, 50% of those are over-educated.

Read more: The School-to-Work Transition of Young Malaysians

Why do educated graduates take up low to mid-skilled jobs?

We have an increasing number of university graduates, but it seems like majority of the jobs in the market don’t require such qualifications.

Inserting an anecdotal experience here:

Advanced engineering jobs are hard to come by in Malaysia, except in the field of oil and gas. We have multi-nationals setting up operations here, but minimal budget is allocated to human capital. They see Malaysia as a cheap manufacturing base and sales hub, instead of a R&D hub. Why invest in the people when all you want is to extract as much output as possible from a ‘cheap’ country? It doesn’t just apply to engineering or science companies, it applies to the wider outsourcing industry as well.

I am not saying there aren’t any good engineering or science companies here, but the reality is it is hard to come by. This definitely further exacerbates the brain drain issue and perpetuate the low wage situation.

I might be wrong but that is my experience. If you have any support against my experience above, feel free to let me know.

In conclusion…

It seems that the factors are three-fold:

  • Lack of high-skilled jobs / Abundance of low-skilled jobs
  • Oversupply of low-skilled human capital
  • Nasty bosses (maybe, maybe not)

Those are difficult problems to fix. As Malaysians, what should we do?

I wouldn’t say I have a definitive answer, but I think there are some things we can do - get digital. For instance, as highlighted in World After Capital, the attention economy is here. You need minimal capital to capitalize on digital opportunities. The return you can get from digital products has a multiplier effect. In addition, the government also recognizes this and provides support for people who want to upskill themselves. See below (not sponsored post):

Of course, there are MOOCs such as:

which I have benefited a lot from!

If you know of any other schemes, leave a comment below and I will update the post accordingly!